How financially fit are you?

Call it joy, contentment, comfort or anything else, we all strive for—and deserve—something else: a sense of financial security in our later years.

Whether your aim is to fulfill all your dreams or simply live worry-free without fear of outliving your savings, it’s as integral a measure of healthy aging as your physical condition. And just like physical wellness, 50-plussers have some unique challenges when it comes to financial fitness. At the same time, we’re facing some of the most dramatic events in financial markets in decades. Astounding revelations of corporate corruption and accounting deceptions have left many of us incredibly anxious and uncertain.

Planning is critical
In fact, we feel that having a plan is more important now than ever. Answers to the following questions will help you design a fitness guide to financial health:

Have you done all you can to pay off debt?
Many people make the mistake of investing before paying down monies owned. Carrying balances on credit cards, for example, can eat up huge amounts of income, but shedding debt of any kind is one of the most effective ys to increase your investment returns. And, if you haven’t done so already, invest in paying down your mortgage—a major debt that eats up a tremendous amount of capital in the form of interest. 

Have you determined your short-term and long-term goals and planned your investments accordingly?
Some investments, such as GICs and money-market mutual funds, are more suitable for short-term goals because of their liquidity and safety. Others, such as income trusts and dividend-paying stocks (and/or the mutual funds that invest in them), can provide a stream of income.

Still others, such as equity investments, have historically provided the best long-term results.

Next page: Retirement on the horizon?

Retirement on the horizon?
How much will you need and where will this money come from? While industry experts tend to calculate retirement income as a percentage of what you spend before retirement, a simple budget listing your expected expenses and projected income can serve as an invaluable road map.

Do you take advantage of all the strategies, deductions and credits that can help reduce your taxes? The “age amount” and the pension income tax credit are two that may be relevant to 50-plus Canadians come April.

Also, consider income splitting with your spouse or common-law partner in order to minimize taxes and possibly avoid the clawback of Old Age Security (OAS) benefits and the age amount.

Remember that investments inside an RRSP or RRIF are sheltered from tax as long as they remain in the plan, so consider holding securities that generate the least tax-advantaged forms of income in such plans.

Otherwise, the tax treatment of investment income depends on how it’s earned. Interest income is taxed at your full marginal rate. Dividend income gets the benefit of a tax credit. And just half of capital gains are taxed.

Have you applied for and are you receiving the maximum you’re eligible for from OAS and Canada Pension Plan (CPP)?

For example, you must qualify and apply for the Guaranteed Income Supplement, which is part of OAS benefits, as well as for certain advantages from CPP, such as survivor’s benefits.

Does your insurance match your current needs?
You may have bought life insurance years ago to protect your family but your situation has probably changed—children may now be grown and independent.

But, disability, critical illness, and long-term care insurance gain in importance as we age.

Are your key documents—such as powers of attorney for property and personal care and your will—up to date?
Improperly prepared documents or those that simply don’t exist could mean that your wishes for your loved ones won’t be fulfilled.

Publisher David Tafler is the author of several finance books. June Yee is financial editor of CARPNews 50Plus.